The public limited company (SA) and the limited liability company (Sarl) present similarities which justify their being traditionally contrasted with partnerships of individual people. Like the SA, the Sarl is a commercial company with the limited liability, but its spirit is the same as a partnership. However, the partners are generally more numerous, and its company participations are not negotiable. Although the situation of the partner in a Sarl is not really different from that of the shareholder in an SA as regards his right to information and right of control, conversely, reciprocal rights in securities are fundamentally different. The other essential difference between the two types of company concerns the situation of the directors, different in every way: their organisation, their company and fiscal status, their powers, the organs which control them, etc. new statute dated January 3 1994 created a third type of entity, a corporation called the 'SAS' (Societe par Action Simplifiee). This form of corporation mixes limited liability and contractual freedom. This freedom is only limited by a minimum protection given to third parties, as the shareholders can organise the management and 'shareholders control' freely. The structure is close to the one of the SA because of the limited liability and also because some rules governing the SA complete the 1994 law. The SNC (Societe en Nom Collectif) is another type of company classified in France under the category 'Societe de personnes', a kind of commercial Partnership used very often by small structures and by joint ventures, the SNC is a 'transparent company' as the taxable profits are transferred to the partners in proportion of their holdings. The company is now close to the SAS because of contractual freedom but at the same time far from it, since all the partners have a personal, joint and unlimited liability.

Company Formation.
The Sarl is the only type which may be constituted by a single partner, the only one for which a maximum of 50 partners is imposed. The minimum amount of capital is 50,000FF, by contributions either in kind or in cash, funds to be fully and immediately paid up, unlike the SA in which industrial contributions are admitted and only a quarter of the contributions in cash has to be paid up on the day the company is formed. The number of shareholders for an SA is of a least seven, the capital of a least 250,000FF, only a quarter of which need to be paid up each year. An SA calling on public savings whose securities are negotiated on the Stock Exchange either through professional brokers or offered publicly, needs a minimum capital of 1,500,000FF. With the partnership limited by shares, the SA is the only type of company allowed to issue investment securities, thus facilitating the financing of operations and investments. A SAS needs two partners, but can only be legal entities with a minimum capital of 1,500,000FF. Its own capital is, at least, of 250,000FF entirely paid up in kind or in cash. The law prohibits SAS to go public. Any company can be transformed into an SAS with the unanimous consent of the shareholders, provided that the new SAS complies with all the rules of incorporation. At least two partners may constitute a SNC: individuals or legal entities, but need to be commercial. No minimum amount of capital is required but if the partners choose to, contributions can be made in cash, in kind or industrial (unlike the SA, SAS and SARL). But all the partners are personally, jointly and unlimitedly liable for the debts of their SNC.

Securities Transfer.
The hybrid nature of the Sarl, which is at the same time an association of people and a limited liability company, is clear from the approval procedure to which any transfer of participations to a third party, requires in particular the consent of the majority of the partners representing at least three quarters of the share capital. In principal, participations are freely transmissible between partners, spouses and descendants, unless otherwise stipulated in the Articles of Association. Moreover, as the company participations are not negotiable securities, the formalities laid down in Article 1690 of the Civil Code have to be complied with as regards the transfer of debts: drafting a document, notifying the company or acceptance of the transfer by the company in an authenticated deed. Lastly, such transfers are subject to a registration fee of 4.8%. Shares of an SA are negotiable securities for the transmission of which no particular form is required. The principle of the free transmissibility of shares is, however, tempered to a certain extent, notably by the insertion in the Articles of Association of a strictly worded approval clause. Moreover, a whole range of institutions have appeared or have seen their powers strengthened by a setting up of a degree of control over capital variations and the activity of companies: for example, exceeding certain thresholds of participation in the company forces the shareholder concerned to make himself known to the company. Shares of the SAS are negotiable but, like the SA, shareholders may include in the by-laws approval clause, temporary non-negotiable share clauses (limited to 10 years), squeeze out clauses. All these amendments must be voted by all the shareholders. This rule preserves the company from outsiders.

Organisation Plans.
The Sarl has a lighter structure than the SA. There is only one directing organ, the managing directors, conditions of their appointment and prerogatives are fixed by the Article of Association. With third parties, the managing director has extensive powers to act in all circumstances in the company's name. Two types of management are possible for the SA, a board of directors and a directorate. The typical public limited company is administered by a board of directors chosen from among the shareholders, which then appoints a chairman and possibly managing directors. The other possibility consists of a directorate composed of natural persons, shareholders or otherwise, entrusted with administering and directing the company, and a supervisory council, grouping together shareholders entrusted with appointing the members of the directorate and supervising their management. This formula has not been very successful in practice because, although it sets up a better separation of powers, it has several disadvantages.

The structure of the SAS is 'lighter' than the one of the SA or the Sarl. The management is organised by the by-laws such as the number and the power of the Directory, the appointment of the Managing Director. However, a few decisions must be taken by all the shareholders: mergers, spin-off, winding up, appointment of statutory auditors. As for the SA, the company management can be controlled by auditors, on request of a minimum of percentage of the shareholders. The organisation of the SNC, as for the SAS, is governed by contractual freedom. The by-laws can provide for only one director or by several (individuals or legal entities). If the director is a partner designated by the by-laws, his removal requires the unanimous consent of all partners. This rule confers a steady management. The death of one partner requires the winding up of the partnership except if the by-laws provide for some other solution. The personal liability eases the financing of the SNC.

Limits on the Managing Directors.
A Sarl director can be dismissed for good reasons and on the partners' decision representing more than half the share capital. Therefore, to be protected from dismissal he needs to own over 50% of the capital. This advantage is, however, counter-balanced by the fiscal status reserved to a majority-owning director who, unlike a minority-owning director, is not treated as an employee. For a long time this has been the cause of a distortion of the form of companies, since many directors made their companies into public limited companies in order to benefit from the favourable treatment of its directors, even if this was not justified by the small size of their companies. The director's obligations are sanctioned by the 'discharge' granted by the partners' annual meeting. Apart from this occasional and sometimes illusory control, the director of a Sarl is far from being subjected to the same kinds of supervision and outside intervention as the management of an SA. The nature of the general meetings and the average shareholders' ignorance of management have led legislators to set up control authorities within the SA itself; auditors and experts appointed by law. The auditor is an essential and necessary component of any SA. Moreover if the company is obliged to prepare consolidated accounts or calls on public savings, the number of auditors required by law rises to two. The auditor is also obliged to warn the company's directors when he thinks the company's at serious risk of having to cease activity. Exceptionally, a company's management can be controlled from outside by an expert appointed by law at the request of a minority of shareholders (10% of the capital), the public prosecutor, etc. The SA has the advantage of permitting non-trading partners and minority shareholders to participate in the capital. It facilitates the financing of industrial investments and concentration and development operations, notably by allowing simplified and inexpensive transfers of shares. On the downside, however, the formalities constrain its constitution and the phases of the company's existence.

In order to protect the third parties, the Managing Director of an SAS represents the company, binds it even for decisions taken outside the scope of the 'Company Purpose'. If by any chance, the amount of capital is reduced to less than 1,500,000FF, the company may be wound up if nothing is done about it within a period of six months. This winding up may be prevented by a recapitalisation up to 1,500,000FF or by the sale of shares. The statute includes a concerted action provision between shareholders and companies controlled by the SAS. This provision can restrain the use of the new corporation for the purpose of controlling other companies. The personal, joint and unlimited liability of the SNC shareholders is inconvenient since it may lead to the disappearance of the legal entity. Certain activities are therefore forbidden to a SNC: insurance, auditing, etc. The limitation over share transfers prevents the easy leaving from the company; such a leaving requires the unanimous consent of the partners.
The Sarl is perfectly suited to small or medium sized companies whose members do not have to commit a large contribution, can limit their liability in proportion and are subjected to rules of operation and control which are more flexible than for the SA. The choice between an SA or a Sarl depends on prior analysis of the company's financial, economic and personal information.

The content of this article is intended to provide a general guide to the subject matter. Individual advice should be sought about your specific circumstances.

For further information please contact Jean-Jacques Bertagna on +331 47 23 05 09.